Mutual Funds
Who's a Contrarian? Not Me!
The pilot of Fidelity's huge Contrafund excels by focusing on companies with visionary executives.
By Manuel Schiffres, Executive Editor
From Kiplinger's Personal Finance magazine, December 2005
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So there's not a single contrarian bone in your body? Not exactly. During the Internet bubble, I was still talking to some of my friends in the gold industry. For most of the '90s, things were pretty bleak. One very shrewd person we used to talk to was a guy named Seymour Schulich who, along with Pierre Lassonde, ran two sister companies that owned royalties on Barrick Gold's Goldstrike mine in Nevada. Every year, he'd say, "The gold business is like farming in the Sahara." Then sometime in 1999, a Canadian investment banker calls, says that Seymour is coming to town and asks if I can host a meeting. I have something of a Woody Allen strategy, which is that 80% of the job is just showing up. So Seymour comes, along with a guy from Gold Fields and a couple of investment bankers, and I'm outnumbered six to one. So I say to Seymour, "In the ten years I've known you, you've always said you don't want to be in the gold business." And he said, "Will, I'm much more bullish on gold now. We're close to the bottom and I want to be leveraged to gold." And he went through the whole story: rising demand for jewelry, flat to down mining production and low prices. I look around and realize I'm the only analyst there. That's bullish. I grab our gold analyst and we start calling different companies and then making our bet.
Where are we in the energy-stock cycle? It's still early. Maybe we're in the fifth inning. We're starting to see the industry raise money, and we're starting to see some speculative deals, such as Norsk Hydro buying Spinnaker. But we haven't yet seen full capitulation by institutional investors. That's when people say, "If you don't own energy, you underperform, and if you underperform, you lose your job."
Now you're starting to sound like a contrarian again. My style is to own what I would call best-of-breed companies. So I'll be slightly contrarian when I move to de-emphasize energy and to emphasize groups that are improving, but I think we're still in the improving stage for the energy sector. Until you see irrational capital spending in the industry, I think we're okay.
Everyone's talking about how big-capitalization stocks are due for a comeback. The surprise may be that the stocks to own are ExxonMobil and Chevron, which are underowned, rather than General Electric and Microsoft, which everybody and his brother owns.
Who has the vision in the energy business? EnCana, a Canadian exploration-and-production company, is one of my biggest holdings. In May 2000, I show up at a meeting of Alberta Energy management. So I start talking with the CEO, a guy with gray hair who looks very experienced. I ask some basic questions, such as "How do you make money in the energy business?" and he starts talking about how it's a capital-intensive business. You want long-life reserves because if you're going to plunk down $1 billion up front, you want that $1 billion to work for you for 20, 25 years. Anyway, I liked the guy -- his name is Gwyn Morgan -- and the company had some good growth prospects, and I bought a little stock. Eventually, Gwyn merges Alberta with PanCanadian, which had this massive acreage in Canada, and creates EnCana. Gwyn is a visionary explorer who's looking for elephantine energy fields that allow him to leverage all his capital and his expertise. He does another acquisition and another, and now he's sort of on top of the world as gas prices go through the roof.
How about a visionary in an area more traditionally associated with growth stocks? In the late '90s, I met twice with Art Levinson, the CEO of Genentech. I thought, Art Levinson is my kind of guy. He's a PhD, he's a good scientist, he's a good businessman, and he knows his company. Genentech is now one of my biggest holdings.
When do you sell a stock? You sell when a company's fundamentals deteriorate. When earnings growth slows, I don't like that. When earnings start going down, I really don't like it. And when a company starts losing money, I really don't like it. But I also sell when I have a better idea with which to replace a stock.